Liability Reform Update
Jim Hough
The Hamilton Consulting Group
Aug.
21, 2006
©
2006 The Hamilton Consulting Group
Summary
[the
Courts, the legislature, the governor]
There has been a concerted effort in
Wisconsin for over 20 years
to establish a civil justice system in
Wisconsin
that is based on common sense and fairness. (This effort has been led by the
Wisconsin Coalition for Civil Justice (WCCJ), which was formed in 1985, and
has included numerous statewide business and professional associations.)
Increasingly, states’ civil justice systems constitute a critical component
in creating jobs and enhancing economic development.
Ten years ago
Wisconsin made significant
strides in advancing those goals by enacting landmark reforms to our joint
and several liability laws, limiting punitive damages and capping
noneconomic damages in medical malpractice claims. As a result, our national
ranking for litigation atmosphere rose to among the 10 best in the nation.
In March 2005, our national ranking slipped from among the
top 10 in the country to #17 as we failed to adopt products liability law
reforms as well as standards regarding the admissibility of expert opinion
evidence. In both areas,
Wisconsin law is out of sync with the vast majority of states in the
country.
More recently, the Wisconsin Supreme Court overturned the
caps on noneconomic damages in medical malpractice cases; weakened the
standards for the assessment of punitive damages; and advanced the “risk
contribution theory,” making Wisconsin the only state in the nation to
completely eliminate the traditional legal requirement to prove direct
liability to allow recovery in a products liability claim.
These developments opened the door to a flood of litigation,
and reversed recent public policy successes in projecting
Wisconsin as business
friendly. The Court also upset the delicate balance between two branches of
government by acting as a “Super Legislature.”
Wisconsin’s
civil justice system was, indeed, in a state of crisis.
The Wisconsin Legislature responded expeditiously by passing
legislation which not only reversed the Supreme Court decisions, but also
attempted to move Wisconsin into the mainstream in the areas of product
liability law and the admission of expert opinion evidence. Unfortunately,
the Governor has vetoed most of these extremely important liability reform
measures and Wisconsin’s civil justice system remains in a state of crisis.
[Due in large measure to the above referenced Supreme Court
decisions and gubernatorial vetoes, our national ranking for “litigation
atmosphere” plummeted in March, 2006 to number 23 in the country, an amazing
drop of 13 places in two short years. Another recent rating system has
Wisconsin even
lower, at # 30.]
Wisconsin Supreme Court Decisions Have
Thrown Wisconsin into a Litigation Crisis
A. The 1995-96 Legislative
Session – Meaningful Civil Justice Reform.
In 1995 Wisconsin
witnessed a change in the balance of power in the Legislature. This
significant event, coupled with the Coalition’s education and awareness
campaign and intensified lobbying and grassroots efforts, produced landmark
civil justice reform.
Joint and Several Liability. Prior to 1995, Wisconsin law
provided that a co-defendant whose liability was as small as one percent
could be required to pay 100 percent of damages if the other co-defendant or
defendants did not have the ability to pay. This was a clear “deep pocket”
theory that amounted to no less than legal extortion in many cases.
Legislation was adopted and signed into law that required proportional
payment unless the co-defendant’s liability exceeded 50 percent.
Punitive Damages. Punishment and deterrence are the only
legitimate reasons for the assessment of punitive damages in civil cases.
Even though providing more money to the injured party, an award of punitive
damages does nothing to make a plaintiff whole – that is accomplished
through the award of special/economic damages and, in appropriate cases,
noneconomic damages. (Plaintiff’s lawyers share in the amount of the award.)
Since the civil justice system (in lieu of the criminal
justice system) is being used for the above referenced purposes, the bar for
assessment of punitive damages must be set high and used in only the most
egregious cases. WCCJ and the Legislature agreed that the standard had eroded over
the years to mirror merely a heightened degree of negligence. The
Legislature adopted a strict standard for the award of punitive damages,
which was, at the time, believed to be among the most stringent in the
country.
Medical Malpractice - Noneconomic Damages Cap. Recognizing a
crisis regarding medical malpractice insurance premiums, health care costs,
and the availability of medical services, legislation was passed
establishing a limit on the amount of noneconomic damages, such as pain and
suffering, mental distress, and loss of enjoyment, to be awarded in medical
malpractice cases. These caps did not apply to special/economic damages such
as medical costs, lost wages, and lost earning capacity.
B. Supreme Court’s Holding
in Punitive Damages Cases Resulted in a Standard Weaker
Than the Standard that Preceded Reforms.
On March 18, 2005,
the Wisconsin Supreme Court handed down two opinions relating to
Wisconsin law on punitive damages. The Court issued its interpretation
of the Wisconsin statute [s. 895.85 (3)] adopted in the 1995 legislative
session. The recent rulings were in a drunken driving case and the high
profile Mitsubishi case.
While the Court recognized that the Legislature created a
“heightened standard” in its adoption of s. 895.85 (3), it rejected the
stricter interpretation of the Appeals Court in the Mitsubishi case,
reversed that decision, and held that the punitive question was appropriate
to be presented to the jury. Despite its recognition of legislative intent
to adopt a heightened standard, the majority on the Supreme Court actually
used the opportunity to craft a standard, based on the Court’s
interpretation, that is weaker than that which existed prior to the
Legislature’s action in the 1995 session. In fact, the punitive damage
legislation had the result intended by the Legislature, which is to limit
punitive damages to the most egregious cases where punishment (outside of
the criminal justice system) and deterrence are appropriate under common law
– until the Court issued its opinion in these two cases.
In both cases the Court failed, or refused to address, the
constitutional issue as to whether the award was excessive. (LeRoy
M.Strenke v. Levi Hogner and Nau Country Insurance Company &
Patricia Wischer, et. al v. Mitsubishi Heavy Industries America, Inc., et.al.)
C. Supreme Court Found That
the Legislature Acted “Irrationally” as the Court Rejected
Medical Malpractice Caps on Noneconomic Damage Awards.
On July 14, 2005,
the
Wisconsin Supreme Court held (4-3) that the statutory limitation for an
award of noneconomic damages in malpractice cases is unconstitutional and
violates the equal protection clause of the Wisconsin Constitution. The
Majority reiterated the theory of “judicial deference to the legislature and
the presumption of constitutionality of statutes,” but stated that a statute
will be held unconstitutional if shown to be “patently arbitrary” with “no
rational relationship to a legitimate government interest.” (Ferdon v.
Wisconsin Patient’s Compensation Fund, 2005 WI 125, July 14, 2005)
“Noneconomic damages” include pain and suffering, mental
distress and loss of enjoyment of normal activity. The caps in question
apply only to these damages and no limit is placed on economic damages such
as medical and other care-related expenses and lost wages.
The Majority does point out that statutory limitations are
not per se unconstitutional and noted that the Court recently
(July 2004) upheld the cap on noneconomic damages for wrongful death
medical malpractice actions. In his concurring opinion, Justice Crooks
“emphasizes” that statutory caps in medical malpractice cases can be
constitutional.
Justice Prosser (joined by Justices Wilcox and Roggensack)
and Justice Roggensack (joined by Justices Wilcox and Prosser) wrote strong
dissents challenging the Majority’s conclusion that the legislatively
adopted cap is not rationally related to the Legislature’s objective.
Both Justices challenge the selective use of studies, many
outside Wisconsin, and the conduct of a “mini trial” to justify its
conclusions under the rational basis theory. Justice Prosser states that
“This court is not meant to function as a ‘super legislature,’ constantly
second-guessing the policy choices made by the legislature and governor.”
Prosser points out the deliberative nature of the legislative process; the
input that may be provided from parties on both or all sides of an issue;
and, the voters remedy to retire those who supported laws that the voters
disfavor.
D. Supreme Court Found Lead
Paint Manufacturers Liable Without Proof of Fault because They can Better
Adsorb or Pass the Costs to Insurers and Consumers.
On July 15, the day after overruling caps on noneconomic damage awards, the
Wisconsin Supreme Court held that Article I, Section 9 of the Wisconsin
Constitution does not insulate wrongdoers from liability simply because
recovery has been obtained from an altogether different wrongdoer for an
altogether different wrong. The Court, most significantly, concluded that
the lead paint claims warrant extension of the “risk contribution” theory.
(Thomas v. Mallett, 2005 WI 129,
July 15, 2005)
Justice Butler wrote, "…we again conclude 'that as between
the plaintiff, who probably is not at fault, and the defendants, who may
have provided the product which caused the injury, the interest of justice
and fundamental fairness demand that the latter should bear the cost of
injury.'"
The manufacturers are in a better position to absorb the cost
of the injury, said
Butler.
“They can insure themselves against liability, absorb the damage award, or
pass the cost along to the consuming public as a cost of doing business.”
The Court concluded that it is better to have the manufacturers or consumers
share in the cost of the injury rather than place the burden on the innocent
plaintiff.
In his dissent, Justice Wilcox said the end result of the
majority decision was "manufacturers can be held liable for a product they
may or may not have produced, which may or may not have caused the
plaintiff's injuries, based on conduct that may have occurred over 100 years
ago when some of the defendants were not even part of the relevant market."
He added, "Simply put, the majority opinion amounts to little more than this
court dictating social policy to achieve a desired result."
E. Recent Decisions Upset
Delicate Balance of Government Branches
Beyond reversing the pro-jobs, pro-growth perceptions painstakingly nurtured
in recent years, with several strokes of their pens the Court is reversed
significant policies carefully crafted by our elected officials. Major
components of
Wisconsin’s 1995 litigation reforms were tossed aside by the Court, arguably
because the majority simply disagreed with the underlying policies. The
court also upset the delicate balance between the branches of government by
acting as a “super legislature.”
F. Court’s Decisions
Reversed Earlier Successes that Enhanced
Wisconsin’s Business Climate
These cases raise concern beyond the examination of methods and rationale of
the state’s highest court. The perception that Wisconsin‘s business climate
is improving has received a serious set back, and the potential impact on
economic development is very troublesome. Sweeping decisions by the
Wisconsin Supreme Court that promote lawsuit abuse have seriously undercut
efforts to portray
Wisconsin as “business friendly.”
Crafting balanced, no-tax-increase state budgets in the face
of huge deficits, enacting major regulatory reforms without compromising
environment protection, along with many other pro-jobs policies sent a vital
economic development message from our elected officials to current and
prospective Wisconsin businesses. There is little doubt this message was
heard as Wisconsin
emerged from its serious economic downturn to outpace the nation in jobs
creation.
But the Supreme Court decisions that struck down reasonable
limits on medical malpractice noneconomic awards, expanded a novel product
liability theory, and misconstrued statutory directives on punitive damages
are sending an entirely different message to businesses within and beyond
our borders. For example, it was disheartening, but accurate when the U.S.
Chamber of Commerce recently broadcast to the its members and the nation
that these decisions make
Wisconsin
“ripe for lawsuit abuse, the effects of which can be devastating to a
state’s economy.”
The U.S. Chamber study previously cited as to
Wisconsin’s ranking in
comparison to other states is not simply an exercise in number gathering; it
is a resource for businesses considering expansion and relocation decisions.
Prior to the successes in the 1995 legislative session, tort reform was
always at the top of the list of legislative issues in survey questions
asked of Wisconsin’s economic development professionals. Why? Because the
litigation atmosphere is a huge factor (among the top four considerations)
when businesses are deciding location decisions.
Wisconsin’s efforts to
control tort costs and to have a litigation atmosphere that is fair, based
on common sense and not frightening to existing and prospective businesses
has indeed taken a big hit.
2005-06 Scorecard of Legislative
Activity
Product Liability
Expert Opinion Evidence
Medical Malpractice Caps on
Noneconomic Damages
-
AB 766 (with caps of $450,000 & $550,000) passed both Houses
of the Wisconsin Legislature and was VETOED by the Governor.
-
AB 1073 (with a cap of $750,000) passed both Houses and was
signed by the Governor as ACT 183.
Seller Manufacturer
Liability/Risk Contribution (The Jobs Protection Act)
Punitive damages
Liability Exemption related
to Weight Gain/Obesity
Repeal of Shareholder
Liability
Curbing the AG’s Power
regarding Nuisance Theory Lawsuits
[This document was prepared
by Jim Hough of The Hamilton
Consulting Group, LLC. Jim also serves as the Legislative Director for the Wisconsin
Coalition for Civil Justice (WCCJ), the Civil Trial Counsel of Wisconsin (CTCW) and the Wisconsin Economic
Development Association (WEDA), all of whom have been active in civil
justice reform issues in Wisconsin for over 20 years.]
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